ECONOMICS
FISCAL POLICY
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
They are both done by the President.
|
|
|
They are both done by the Fed.
|
|
|
They are both used to keep the economy stable.
|
|
|
They both use four tools.
|
Detailed explanation-1: -Monetary policy refers to central bank activities that are directed toward influencing the quantity of money and credit in an economy. By contrast, fiscal policy refers to the government’s decisions about taxation and spending. Both monetary and fiscal policies are used to regulate economic activity over time.
Detailed explanation-2: -(vii) Monetary and fiscal policies are complementary to each other; when one fails, the other succeeds. Monetary policy is more effective during inflation, while fiscal policy is more effective during deflation. (viii) A judicious combination of monetary and fiscal policies is required to meet economic exigencies.
Detailed explanation-3: -This implies an interdependence between fiscal and monetary policies: monetary policy faces more challenges to maintain inflation expectation anchored when the fiscal outcomes worsen. The limits imposed by fiscal policy to the achievement of monetary policy objectives are larger when the fiscal deficit is larger.
Detailed explanation-4: -The monetary policy has the advantages mentioned above: (1) isolation from political pressure and (2) speed and flexibility over the fiscal policy. The monetary policy is speedy as there are fewer implementation lags than the fiscal policy.
Detailed explanation-5: -Fiscal policy is a means to use government spending and taxation to influence the economic situation. It is different from the monetary policy that is under the control of the central bank in that country. Together these two policies can help a country to achieve its economic goals.